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Standard annuity rates in surprise uplift!

Standard annuity rates in surprise uplift!

Category: Annuities

Updated: 01/07/2015
First Published: 01/07/2015

This article was correct at the time of publication. It is now over 6 months old so the content may be out of date.

Annuity rates have been on a downward spiral of late, and the recent pension reforms – which effectively removed the obligation for most retirees to buy an annuity – left many people predicting that the situation would only get worse. Well, that may not be the case, because latest figures show that standard annuity rates have actually increased!

Research from My Pension Expert has revealed that the rate for a standard annuity has risen by 5.64% since mid-May, reaching the highest level recorded so far this year. In real terms, this increase means that a 64-year-old with a pension pot of £100,000 would now be £303 a year better off than if they'd taken a standard annuity seven weeks ago!

The figures show that, at 12 May, the best offer available would have given them an annual income of £5,370, a sum that has subsequently jumped to £5,673. This increase equates to receiving an extra £6,060 over the course of an average 20-year retirement – it can soon add up!

So just why the improvement? Analysis points to a rise in gilt yields, which are intrinsically linked to annuity rates. Gilt yields saw a definite spike this month, led by speculation that a member of the Bank of England's policy committee would vote to increase base rate, which meant that gilt yields have also reached the highest level seen so far this year – and standard annuity rates have followed suit.

Could it be a sign that the tide is starting to turn? Annuity sales have fallen almost as dramatically as rates in recent months, but if rates start to rise, there's every possibility that sales could, too.

"The rise in the standard annuity rate is great news for those considering purchasing an annuity," said Scott Mullen of My Pension Expert, "as it could lead to a significant increase in their retirement income. It demonstrates just how volatile the market is and why it requires constant monitoring if you're to make the most of your pension funds.

"Now is a good time for those in drawdown to re-evaluate their options, as this month's increase could be the tipping point that persuades them to purchase an annuity. As they provide a secure income that lasts throughout the entirety of the annuitant's retirement, they are the preferable product for most. That's why, if rates continue to rise, we would also expect to see annuity's popularity rise with them."

If you're on the fence, now's the time to seek advice. There are so many different options available that it can be difficult to know where to start, but getting the right kind of support can make all the difference and can ensure you've got the retirement income solution that meets your needs. Contact Pension Wise to start the process and ideally follow that up with independent financial advice, and if you're ready to consider your annuity options, consult our no obligation planner to find out more.

Disclaimer: Information is correct as of the date of publication (shown at the top of this article). Any products featured may be withdrawn by their provider or changed at any time.